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Bank of Canada Holds Key Rate Steady

Bank of Canada Holds Key Rate Steady

As expected, the Bank of Canada announced on Wednesday that it would maintain its target overnight rate at 1%, where it has remained since September of 2010.  In mortgage and borrowing terms this means that the Prime Rate of essentially all lenders will remain at 3%.  

The announcement itself was no surprise, but the language in the accompanying statement has changed slightly.  Over the last 6 months or so the Bank has been gradually backing away from the rate hike button and yesterday’s announcement continued this trend.  Balancing improving growth in Canada and China with concerns about Europe and some “fiscal drag” in the U.S., the Bank stated that “the considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”  In summary, the Bank’s stance on rate hikes has moved from imminent, to less imminent to not really very imminent at all, with most analysts agreeing that we are unlikely to see a rate hike until 2014. 

Mr. Carney also appears to be losing less sleep over consumer debt levels, stating that the Bank “expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels”.   With Canadians taking on less debt and a moderating and even cooling real estate market the Bank's concerns about a bursting real estate bubble have also receded and the focus has shifted to the Canadian economy in general.

For further commentary please see the following:

Bank of Canada rate statement: What the economists say

Carney shifts from housing bubble to sluggish growth

Bank of Canada softens stance, rate hike still on horizon

Bank of Canada’s official statement on rates March 6, 2013

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